Q. 1. What is certificate of lncorporation?

Ans.:- The Certificate of Incorporation is a crucial legal document that marks the birth of a
company. Let me break it down for you:
1. Significance:
o The Certificate of Incorporation brings the company into existence as a legal
person.
o It serves as proof that all legal requirements for company formation have been
met.
2. Contents:
o The certificate typically includes:
▪ The company name and its abbreviated form.
▪ A statement specifying the business purpose.
▪ The registered office address and the name of the registered agent for
that address.

In essence, the Certificate of Incorporation is like a company’s official birth certificate,

affirming its legal identity and existence in the eyes of the law.

Q. 2. When does a company can be Holding or Subsidiary of each other?

1. Ans.:- Holding Company:
o A holding company is one that controls other companies by owning a
significant portion of their shares.
o It typically holds more than 50% of the total share capital of its subsidiaries.
o The holding company exerts influence over its subsidiaries’ decisions and
operations.
o It acts as a parent, providing guidance and resources to its subsidiaries.
2. Subsidiary Company:
o A subsidiary company operates under the control of a holding
company (or parent company).
o It can be wholly owned or partially owned by the holding company.
o The holding company may control the composition of the subsidiary’s Board
of Directors or hold more than 50% of its total share capital.
o Subsidiaries benefit from the support and resources provided by the holding
company.
3. Implications:
o Holding and subsidiary companies are distinct legal entities but are often
treated as a group for certain purposes.
o They are linked together by stock ownership, with the holding company
having control over the subsidiary.

Remember, these relationships have legal implications, and both holding and subsidiary
companies maintain their separate identities.

Q. 3. What is Amalgamation'?

Ans.:- An amalgamation is a combination of two or more companies into a new entity. An

amalgamation is different from a merger because neither company involved survives as a
legal entity. An amalgamation usually occurs between companies that operate in the same or
similar line of business2. The new entity formed by an amalgamation is called an amalgamated
company with new legal existence.
Q. 4. What is crystallization of charge?

Ans.:- Crystallization of charge is a process in which a floating charge is converted into a

fixed charge. This process occurs when a borrower defaults on payment and the lender takes
action to recover the debt, at the time of winding up of the company, or when a receiver is
appointed by court. With a fixed charge, the assets become fixed by the lender so the company
cannot use the assets or sell them.
Q. 5. Different clauses of Memorandum of Association
Ans.:- A Memorandum of Association (MOA) contains the following clauses:

• Name Clause: specifies the name of the company.

• Domicile Clause: specifies the location of the company’s registered office.
• Objects Clause: specifies the objectives of the company.
• Liability Clause: specifies the liability of the members of the company.
• Capital Clause: specifies the amount of capital with which the company is registered.
• Subscription Clause: specifies the number of shares subscribed by the members of
the company.

Q. 6. Define prospectus

Ans.:- A prospectus is a legal document that a company issues to the public giving details
of an offer for investment. It is filed with the Securities and Exchange Commission (SEC). It
generally discloses the company’s operations and the purpose of the securities being
offered. Every public company is entitled to issue a prospectus for its shares or debentures, but
a private company is not.
Q. 7. When Stakeholders Relationship Committee is required ?
Ans.:- Every listed company and the Board of Directors of a company which consists of more
than one thousand shareholders, debenture-holders, deposit-holders and any other security
holders at any time during a financial year shall constitute a Stakeholders Relationship
Committee
Q. 8. Any two items of Directors Responsibility statement
Ans.:- The Directors’ Responsibility Statement is a statement required under Section 134 (5)
of the Companies Act, 2013. The statement is intended to set forth the area of responsibility of
the directors as distinct and independent from the responsibilities of the auditors of the
Company. The statement must include the following information:

• Accounts of the company has been prepared on a going concern basis by the
directors of the company.
 • In the preparation of the accounts, the director of the company has followed the
applicable accounting standards and has provided proper explanations for any
material departures from those standards.
• Compliance with applicable accounting standards, deviations, if any.
• Consistency in adoption of accounting policies to reflect true and fair view of
financial statements.
• Maintenance of Accounting records for safeguarding assets and preventing frauds.

Q. 9. Any two services that cannot be provided by Auditors

Ans.:- Auditors are not allowed to provide certain services. These services include:
• Non-audit services to audit clients if that would present a threat to independence for
which no adequate safeguards are available.
• Accounting and book-keeping services.
• Internal audit.
• Design and implementation of any financial information system.
• Actuarial services.
• Investment advisory services.
According to section 144 of the Companies Act 2013, auditors are only allowed to provide
other services that are approved by the Board of Directors or the audit committee
Q. 10. What is Red- herring Prospectus?
Ans.:- A red herring prospectus is a preliminary document filed by a company with the SEC
as part of a public offering of securities. It contains information about the company's
operations, but does not include the price and number of shares offered. It states that a
registration statement has been filed with the SEC but is not yet effective. It is a first or
preliminary prospectus that is subject to change before the final prospectus
Q. 11. Who is promoter?

Ans.:- In corporate law, a promoter is the founder or organizer of a corporation or business

venture. The promoter is the person who takes the initiative to create or organize a business
and performs the conduct required for incorporating the business venture. The promoter is
responsible for finding the first directors, settling the terms of preliminary contracts and
prospectus (if any), and making arrangements for advertising and circulating the prospectus
and placing the capital.
Q. 12. What do you mean by Cumulative shares?

Ans.:- Cumulative shares are a type of preference shares that protect the investor against a
downturn in company profits. They require that any unpaid dividends must be paid to preferred
shareholders before any dividends can be paid to common shareholders. Cumulative shares
give the preference shareholder the right to receive payments each dividend period, including
any dividend payments missed because the directors did not declare a profit. Unpaid dividends
pass to future years and have to be paid out before dividends for common stockholders.
Q. 13. What is fixed and floating charges?
Ans.:- Fixed and floating charge are types of security for debt that lenders take from
borrowers. Fixed charge applies to specific identifiable assets that cannot be sold or
transferred without the lender's consent. Floating charge applies to the whole or a part of the
borrower's property that can be sold, transferred or disposed of until it becomes fixed. Fixed
charge is a legal charge and has preference over floating charge in insolvency. Floating charge
is an impartial charge and can change based on market conditions
Q. 14. Define debenture?
Ans.:- A debenture is a financial instrument that companies use to raise funds from
investors by acknowledging a debt. It is a form of loan or debt that is usually unsecured by
collateral and relies on the creditworthiness of the issuer. Debentures may have different types
and features, such as being secured, unsecured, registered, bearer, redeemable, irredeemable,
or convertible. Debentures provide a fixed return to the debenture holders and contain a
contract for repayment of principal and interest
Q. 15. Who is Proxy?
Ans.:- In company law, a proxy is a person who represents a member in the shareholders’
meeting of a company, with a legal document that could prove their authority. A proxy is
also an agent legally authorized to act on behalf of another party or a format that allows an
investor to vote without being physically present at the meeting. This authority is generally
provided by the charter and bylaws of a corporation or by a state statute. The term ‘proxy’ is
used in two ways under the Companies Act, 2013
Q. 16. Point out any two Distinctions Between a Company and a Parters?
Ans.:-
1. Definition:
o A partnership firm is a mutual agreement between two or more persons to run
a business and share profits and losses. Partnerships operate based on an
understanding among the partners, and the business is carried out collectively
by all partners or by one partner acting on behalf of all.
o A company, on the other hand, is a separate legal entity formed by a group of
individuals with a common objective of providing goods and services to
customers. It has its own legal existence distinct from its members.
2. Legal Existence:
o In a partnership, the firm doesn’t have a legal existence separate from its
members. Partners are personally liable for the firm’s actions and debts.
o In a company, it is considered a legal person and corporate body with a distinct
corporate personality from its members. Shareholders are not personally liable
for the company’s acts; their liability is limited to their investment in shares .

Remember that these distinctions play a crucial role in determining the structure, liability, and
governance of these two types of business entities.

Q. 17. What is “Joint Venture”?

Ans.:- In company law, a joint venture refers to an arrangement where two or more
individuals, companies, partnership firms, corporations, or legal entities come together to
undertake an economic or research activity by entering into an agreement. Let me break it
down for you:
1. Purpose: Joint ventures are formed to achieve specific goals, such as technology
transfer, research and development, or the supply of technological know-how.
Interestingly, foreign companies often establish joint ventures to gain market access in
a particular country.
2. Formation: There is no specific procedure for forming a joint venture, except for
negotiations, due diligence, and signing a joint venture agreement. The agreement
outlines the terms, including capital contributions, income sharing, expenses, liabilities,
and control in the newly formed entity.
3. Entities Involved: Joint ventures can take various forms, such as partnership
firms, corporations, or any other business entity chosen by the parties. In India,
companies incorporated with up to 100% foreign equity are treated the same as
domestic companies.
4. Approval and Partners: Necessary approvals are required for joint ventures involving
foreign entities. At least two or more partners are needed to form a joint venture.
5. Legal Documentation: Before signing the joint venture agreement, thorough
discussions and negotiations are crucial to avoid misunderstandings later. It’s advisable
to involve lawyers or chartered accountants, especially for complex joint venture
agreements.
Remember, joint ventures are limited to the purpose for which they are formed, and the terms
should be clearly defined to ensure a successful collaboration.

Q. 18. What is “Foreign Security”?

Ans.:- foreign security means any security, in the form of shares, stocks, bonds,
debentures or any other instrument denominated or expressed in foreign currency and
includes securities expressed in foreign currency, but where redemption or any form of return
such as interest or dividends is payable in Indian currency;
Q. 19. What is “Director Identification Number”?

Ans.:- A Director Identification Number (DIN) is a unique 8-digit number assigned to all
directors of an existing or a new company. Each individual that is promoted to the rank of
director must apply and obtain a DIN, which shall act as an ID for all the actions they take in
the future in the name of the organization.
Q. 20. What is “Repatriation of Foreign Exchange”?

Ans.:- Repatriation of foreign exchange means the conversion or exchange of foreign

currency into someone's home currency. It can also refer to the return of anything or anyone
to its country of origin. One way of repatriating foreign exchange is to receive payment in India
in Rupees from the account of a bank or an exchange house outside India that is maintained
with an authorised dealer.
Q. 21. What is “floating charge”?
Ans.:- A floating charge is a type of security interest that is available only to companies
and covers a changing pool of assets. The company can deal with the assets in the ordinary
course of business without the lender's consent. However, if the company defaults or ceases to
be a going concern, the floating charge becomes fixed or "crystallised" on the assets at that
time. A floating charge has fewer legal rights than a fixed charge
Q. 22. What is “Deemed Prospectus”?

Ans.:- A deemed prospectus is a detailed legal document which contains all information
regarding stocks, shares or securities that a company offers to public. It is defined under
section 25 (1) of The Company’s Act. When any company offers securities for sale to the
public, allots or agrees to allot securities, the document will be considered as a deemed
prospectus through which the offer is made to the public for sale. The prospectus produced by
the intermediary/underwriter shall be deemed to be the prospectus of the originating company
itself if certain circumstances are met.
Q. 23. What is “Debenture”?

Ans.:- A debenture is a financial instrument that companies use to raise funds from
investors or lenders. It is a written document that acknowledges a debt under the common
seal of the company and contains a contract for repayment of principal and interest The
debenture may give the lender security over some or all of the company’s assets, or it may be
unsecured. The debenture may also be convertible into equity shares at the option of the holder.
Q. 24. Who is a “Nominee Director”?

Ans.:- A nominee director is a director in a company who has been appointed by a third
party to represent its interests. A nominee director can act only on behalf of the beneficiary
owner and is not legally permitted to take business decisions without consulting with the
director. A nominee director is responsible for the operation of the company and accepts the
legal obligations associated with company directorship or ownership in the country of
incorporation. The appointment of nominee directors is governed by the articles of association
of the company.
Q. 25. What is a “Subsidiary Company”?

Ans.:- A subsidiary is a company that is more than 50% owned by a parent company or
holding company. Subsidiaries are separate and distinct legal entities from their parent
companies. They are fully or partially controlled by the parent company. Subsidiaries are
separate entities with their own legal identity, and they can enter into contracts, own assets,
incur liabilities, and employ staff.
Q. 26. What is Investor Education and Protection Fund?

Ans.:- The Investor Education and Protection Fund (IEPF) is established under Section 125 of
the Companies Act, 2013. It is a fund where unpaid or unclaimed amounts belonging to a
company’s investors are pooled and credited. The IEPF funds are utilized for various purposes
as provided under the Act. The amounts such as dividends, applications money, matured
deposits etc, which have remained unpaid or unclaimed for a period of 7 years are required to
be transferred to the IEPF2.
BLS Questions with Answers
Q. 1. What is MOA? Explain 2 clause of MOA?
Ans.:- A memorandum of association (MOA) is a legal document that is prepared when
forming and registering a limited liability company (LLC)12. It contains the following
clauses:

• Name clause: the name of the company

• Registered office clause: the location of the company's business
• Object clause: the purpose and scope of the company's activities
• Liability clause: the extent of the members' liability for the company's debts
• Capital clause: the amount and division of the company's share capital
• Association clause: the declaration of the members' intention to form the company
• One-Person Company Clause: the name of the nominee director in case of a one-
person company.

Q. 2. Highlight the case study of John V. Lip man

Ans.:-
Let’s delve into the case study of Jones v Lipman from 1962. This legal dispute revolves
around company law and the concept of piercing the corporate veil.
Facts:

• Mr. Lipman initially agreed to sell a property to Jones for £5,250.

• However, he later changed his mind and decided not to proceed with the sale.
• Instead, Lipman formed his own company, which had a mere £100 in capital, and
made himself the director and owner.
• He then transferred the land (which he had initially agreed to sell to Jones) to this newly
formed company for a reduced price of £3,000.

Key Issues:

1. Could an order of specific performance be enforced in these circumstances?

2. Was the company created by Lipman merely a sham to avoid recognition by the eye
of equity?

Decision/Outcome:

• The court held that the Rules of the Supreme Court could indeed apply to these
circumstances.
• It was found that Lipman’s company was created as a mask to avoid recognition by
the eye of equity.
• Consequently, a requirement of specific performance could not be avoided.
• Since Lipman had control over the sham company that held the property, he was the
only individual who could perform the original agreement.
This case exemplifies the situation where a company is used as a “mere facade” to conceal the
true facts and avoid pre-existing obligations. It serves as a significant precedent in the area of
corporate law

Q. 3. Briefly explain the issues of Ashbury Railway Carriage and Iron Co. V/s Riche
Ans.:- The case of Ashbury Railway Carriage and Iron Co. v. Riche is a significant legal
precedent in the realm of company law. Here’s a concise summary:
1. Facts:
o The case revolved around the objects clause in a company’s memorandum of
association.
o Ashbury Railway Carriage and Iron Co. Ltd had specific objects listed in its
memorandum, including the sale and manufacture of railway carriages,
machinery, and materials.
o The company entered into a contract with Mr. Riche for the construction of a
railway line in Belgium, which fell outside the scope of its stated objects.
2. Legal Issue:
o The central question was whether the company’s contract with Riche was ultra
vires (beyond its legal capacity) due to being outside its objects clause.
3. Court’s Ruling:
o The House of Lords held that the contract was indeed ultra vires.
o Since the contract was not within the company’s specified objects, it lacked
legal effect.
o Consequently, Riche’s claim against the company for breach of contract failed.
4. Ultra Vires Rules:
o This case established the ultra vires rules, which dictate that a company can
only engage in activities explicitly allowed by its objects clause.
o If an action falls outside these specified objects, it is considered invalid.
o The case highlighted the importance of checking a company’s memorandum to
ensure its capacity to enter into contracts.

In summary, Ashbury v. Riche clarified the boundaries of a company’s legal capacity and
emphasized the significance of adhering to the objects stated in its constitution

Q. 4. What is separate legal entity? Explain Lee v/s Lee Air farming Ltd.
Ans.:- A separate legal entity refers to an organization recognized by law as a distinct “legal
person.” This entity has its own legal rights, obligations, and identity, separate from the
individuals who govern or own it. Key characteristics of a separate legal entity include:

1. Distinct Identity: It can own property, enter into contracts, and represent itself in court
under its own name.
2. Limited Liability: The liabilities of the entity are separate from those of its
shareholders or members.

Now, let’s dive into the fascinating case of Lee v. Lee’s Air Farming Ltd.:
Case Summary: Lee v. Lee’s Air Farming Ltd. (1960)
1. Facts:
 o In 1954, Mr. Lee formed the company LEE’S AIR FARMING LTD. for aerial
top-dressing.
o Lee owned 2,999 out of 3,000 shares in the company and was also its director.
o The company entered contracts, including insurance policies for its employees.
o Tragically, Lee died while piloting an aircraft during work.
2. Issue:
oLee’s wife, Mrs. Lee, claimed worker compensation under the New Zealand
Workers’ Compensation Act, 1922.
o She argued that Lee was an employee of the company.
3. Court’s Decision:
o The New Zealand Court of Appeal initially rejected Mrs. Lee’s claim, stating
that a man could not effectively employ himself.
o However, the Privy Council (Judicial Committee) reaffirmed that a corporation
is a separate legal entity.
o Lee, as the sole director and shareholder, could still be employed by the
company he controlled.
o Mrs. Lee’s claim was valid, and she was entitled to worker compensation.

Key Takeaways:

• Corporate Veil: The case underscores the concept of the corporate veil, which
separates a company’s legal identity from that of its members.
• Separate Legal Personality: Lee’s Air Farming Ltd. was treated as a separate legal
entity, distinct from Lee himself.
• Importance: The ruling highlights the importance of recognizing a company’s
independent legal existence.

In summary, Lee v. Lee’s Air Farming Ltd. exemplifies the enduring principle that a
corporation is more than its individual components—it is a separate legal entity with its own
rights and responsibilities

Q. 5. What is the object clause? Explain with relevant Example?

Ans.:- An objects clause is a provision in a company's constitution that states the purpose
and range of activities for which the company is carried on. It is a part of a company's
memorandum of association, which is a legal document describing a new company. The objects
clause sets out the purposes the company was formed for.
Q. 6. What is the lifting of a Corporate veil? In what cases the corporate veil has been
lifted
Ans.:- The lifting of the corporate veil refers to the legal doctrine where the separation
between a company (or corporation) and its shareholders is disregarded, treating them as a
single entity. In other words, the corporate veil is lifted when the court looks beyond the legal
facade of the company to hold its members personally liable for the company’s actions or debts.
Here are some notable cases where the corporate veil has been lifted:
1. Salomon vs. Salomon and Co. Ltd.:
o Facts: Mr. Salomon incorporated a company named “Salomon & Co. Ltd.” with
himself, his family members, and a few others as subscribers. The company
took over his personal business assets.
 o Issue: When the company went into liquidation, unsecured creditors argued that
Mr. Salomon should not be treated as a secured creditor for the debentures he
held, as he was the managing director of a one-man company.
o Decision: The court upheld the concept of the corporate veil, ruling that a
company, once validly registered, becomes a separate legal person.
Mr. Salomon was considered a secured creditor.
2. Daimler Company Limited vs. Continental Tyre & Rubber Company:
o Facts: The Continental Tyre and Rubber Company (incorporated in England)
supplied tires to Daimler Company. During World War II, the England court
decided that Daimler should not trade with the German (enemy due to war)
Continental Tyre and Rubber Company.
o Application: The court pierced the corporate veil to consider the company’s
true character and its association with the enemy country.
3. Dinshaw Manekjee Petit:
o Facts: The company was a mere sham, and its sole purpose was to avoid taxes.
o Decision: The court disregarded the corporate veil and held the shareholders
personally liable for tax evasion.
4. Workmen employed in Associated Rubber Industry Limited vs. Associated
Rubber Industry Limited:
o Facts: The company was a subsidiary of another company. The workers sought
to recover their dues from the parent company.
o Ruling: The court lifted the corporate veil, allowing the workers to claim their
dues from the parent company.
5. Merchandise Transport Limited vs. British Transport Commission (1982):
o Facts: The subsidiary company was insolvent, and the parent company was
solvent.
o Decision: The court pierced the corporate veil, allowing the parent company to
be held liable for the subsidiary’s debts.
6. Gilford Motors Co. vs. Horne:
o Facts: Mr. Horne, a former employee, started a competing business in violation
of a non-compete agreement. He did so through a company he controlled.
o Ruling: The court lifted the corporate veil, preventing Mr. Horne from evading
the non-compete agreement by using the company.

These cases illustrate situations where courts have looked beyond the corporate structure to
ensure justice and prevent misuse of the corporate form. The doctrine of lifting the corporate
veil exists as a check on the principle that shareholders should not escape liability for the
company’s debts beyond their investment

Q. 7. Explain the case Sir Dinshaw Manekjee Petit?

Ans.:- The Sir Dinshaw Maneckjee Petit case is a significant legal precedent related to
the lifting of the corporate veil. Here’s a concise summary:

• Background: Sir Dinshaw established four private companies ostensibly to hold

investments.
• Tax Evasion Allegations: The court found these companies were sham and fictitious,
used to evade taxes.
• Court’s Decision: The corporate veil was lifted, and Sir Dinshaw was held personally
liable for tax evasion.
 • Significance: The case underscores that the corporate veil cannot shield individuals
from accountability for fraudulent actions .

OR
The Sir Dinshaw Maneckjee Petit case is a significant legal precedent related to the lifting
of the corporate veil. Let’s delve into the details:
1. Background:
o Assessee: Sir Dinshaw Maneckjee Petit, an affluent individual.
o Formation of Companies: He established four private companies: Petit
Limited, the Bombay Investment Company Limited, the Miscellaneous
Investment Limited, and the Safe Securities Limited.
o Purpose: These companies were ostensibly formed to hold a block of
investments as an agent.
2. Corporate Veil and Immunity:
o Under the concept of the corporate veil, a company is treated as a separate legal
entity distinct from its shareholders. Shareholders or directors are generally not
personally liable for the company’s debts or offenses.
o However, this veil can be lifted when it is misused for fraudulent or ultra vires
(beyond legal authority) acts.
3. Tax Evasion Allegations:
o Sir Dinshaw’s aggregate income of Rs. 11,35,302 attracted a total tax of Rs.
3,90,804.
o His counsel argued that he was merely a trustee of the family companies, and
the interest and dividends received belonged to these companies.
o The Advocate General contended that the transactions were sham and fictitious.
4. Court’s Decision:
o The Bombay High Court held that the company formed by Sir Dinshaw was
solely for evading super taxes.
o The company did no actual business; it existed merely as a legal entity to receive
dividends and interest, which were then handed over to Sir Dinshaw as
pretended loans.
o The court pierced the corporate veil, identifying Sir Dinshaw as the true
beneficiary of the transactions.
5. Significance:
o This case exemplifies how the corporate veil can be lifted when it is used to
conceal fraudulent or improper activities.
o It underscores that the concept of separate legal entity does not shield
individuals from accountability for their actions behind the corporate facade.

In summary, the Sir Dinshaw Maneckjee Petit case established the doctrine of lifting the
corporate veil, emphasizing that the veil cannot be misused to evade legal responsibilities.

Case Laws:-
Q. 1. Salomon V/s Salomon Co. Ltd. (1967)
Ans.:- Salomon v Salomon & Co Ltd is a landmark case in UK company law that
established the principle of separate legal personality. The case involved a shoemaking
business owned by Mr. Salomon, who incorporated it as a limited liability company and lent
money to the company as a secured creditor. The case established that a Limited Liability
Company wears an independent legal identity from its shareholders, and therefore,
shareholders cannot be held responsible for the debt and liabilities of the company. The ruling
was overturned by the House of Lords on appeal.
OR
Salomon v A Salomon and Co Ltd [1897] AC 22 is a landmark case in company law that
established the principle of Separate Legal Personality (SLP). Here’s a concise summary:
1. Facts:
o Mr. Salomon transferred his boot-making business (initially a sole
proprietorship) to a newly incorporated company, Salomon Ltd.
o The company had members comprising of Salomon and his family.
o The transfer price was paid to Salomon in the form of shares and debentures
with a floating charge on the company’s assets.
o When the company faced financial difficulties and went into liquidation,
unsecured creditors sought to challenge its separate legal identity.
2. Issue:
o The central issue was whether, despite the separate legal identity of the
company, Salomon (as the majority shareholder) could be held personally liable
for the company’s debt beyond his capital contribution.
3. Ruling:
o The Court of Appeal initially declared the company a “myth,” arguing that
Salomon had incorporated it contrary to the true intent of the Companies Act.
o However, the House of Lords overturned this ruling.
o The court held that the company had its own rights and liabilities, and the
motives behind its formation were irrelevant in determining its legal existence.

Salomon v Salomon remains a foundational case, emphasizing the enduring importance of

separate legal personality in company law. It underscores that a limited liability company exists
independently of its shareholders, shielding them from personal liability for the company’s
debts and liabilities
Q. 2. ashbury railway carriage and iron company V/s riche (1875)
Ans.:- In the case of Ashbury Railway Carriage and Iron Co. v. Riche (1875), it was held that
by entering into the transaction, the company was in breach of its constitution, as it had no
'competence' or 'power' to make the contract. Therefore, the transaction had no legal effect. As
a result, Richie's claim against the company for breach of contract failed, as there was no
contract to be enforced.

OR
In the Ashbury Railway Carriage and Iron Co. v. Riche case, the House of Lords dealt with
the concept of ultra vires in company law. Here’s a summary of the case:
1. Background:
o The Ashbury Railway Carriage and Iron Co. Ltd. had a memorandum of
association that outlined its business objectives.
o The company’s objects included making or selling railway carriages,
machinery, and other related activities.
o Riche entered into a contract with the company for financing the construction
of a railway line in Belgium.
 2. Issue:
o The contract between the company and Riche was not explicitly within the
scope of the company’s stated objectives.
o The question was whether the company had the legal capacity to enter into this
contract.
3. Decision:
o The House of Lords held that the contract was ultra vires (beyond the
company’s powers).
o Since the contract was not included in the company’s objects clause, it was in
breach of its constitution.
o As a result, the transaction had no legal effect, and Riche’s claim for breach of
contract failed.
4. Ultra Vires Rules:
o This case established the ultra vires rules, which meant that a company could
only do what its objects clauses enabled it to do.
o If the transaction had been included in the company’s objects clause, it would
have been valid.
o Those dealing with a company needed to check its memorandum to ensure
capacity for entering contracts.

The Companies Act 2006 later relaxed these rules, allowing companies to have unlimited
objects for which they may operate

Q. 3. Jones V/s Lipman (1962) 1 W.L.R. 832

Ans.:- Jones v Lipman 1 WLR 832 is a UK company law case concerning piercing the
corporate veil. It exemplifies the principal case in which the veil will be lifted, that is, when a
company is used as a "mere facade" concealing the "true facts", which essentially means it is
formed to avoid a pre-existing obligation.
In the Jones v Lipman case of 1962, the court grappled with the intricacies of company law
and the concept of piercing the corporate veil. Here’s a succinct summary:
• Facts: Mr. Lipman initially agreed to sell a property to Mr. Jones for £5,250. However,
he had a change of heart. To circumvent this commitment, Lipman formed his own
company, which had a mere £100 in capital. He cleverly appointed himself as the
director and owner of this newly minted company. Subsequently, he transferred the
land (originally meant for Jones) to this sham company for a reduced price of £3,000.
Lipman had borrowed part of the money needed for this transaction through a bank
loan, and the rest was owed to other sources.
• Issue: The court had to determine whether specific performance (i.e., enforcing the
original agreement) could be carried out against both Lipman and his company.
Essentially, they needed to assess the legitimacy of the company he had created and the
transaction involving the property.
• Decision: The court held that the Rules of the Supreme Court could indeed apply to
these circumstances. Furthermore, they found that Lipman’s company was nothing
more than a “mask to avoid recognition by the eye of equity.” In other words, it was a
facade concealing the true facts. Consequently, specific performance could not be
evaded. Since Lipman controlled the sham company that held the property, he was the
only individual capable of fulfilling the agreement.
This case exemplifies the principle that when a company is used as a mere facade to avoid pre-
existing obligations, the corporate veil may be lifted
Q. 4. Daimler Co. Ltd. V/s Continental Tyre and Rubber Co. (Great Britian) Ltd., (1916)2
A.C. 307.
Ans.:- In the landmark case of Daimler Co. Ltd. v. Continental Tyre and Rubber Co.
(Great Britain) Ltd., decided in 1916, several significant legal principles were
established. Let’s delve into the details:
1. Background of the Case:
o The case revolved around a company incorporated in England with the
purpose of selling tires made in Germany by a German company.
o The shareholders of this company were primarily German, except for one
individual who was born in Germany but had become a naturalized British
citizen.
o When World War I erupted between England and Germany, the situation
became complex due to the nationality of the shareholders.
2. Corporate Veil and Shareholder Influence:
o The corporate veil principle typically shields a company from the liabilities of
its shareholders. However, wartime conditions can alter this.
o In this case, the corporate veil was lifted because shareholders’ decisions
ultimately influenced the company’s actions.
o When two companies from warring nations are involved, the corporate veil
may be pierced to reveal the true impact of shareholders’ nationalities.
3. Facts of the Case:
o The Continental Tyre and Rubber Co. (a German company) supplied tires to
Daimler Co. Ltd. (the English-incorporated company).
o Daimler was cautious about making payments during the war, fearing it might
violate the common law offense of trading with the enemy.
o The Trading with the Enemy Act 1914 further complicated matters.
4. Court’s Decision:
o The House of Lords held that trading with or paying money to alien enemies
during the war was illegal.
o Despite the indirect means used by the respondent company to obtain its
debts, the court found that the objective was to enable payments to the King’s
enemies, which was unlawful.

This case remains a precedent for lifting the corporate veil during wartime and
underscores the delicate balance between a company’s separate legal entity and the
influence of its shareholders

Q. 5. Royal British Bank V/s Turquand Rule

Ans.:- Royal British Bank v Turquand is a UK company law case that introduced the
doctrine of indoor management rule. The case held that people transacting with companies
are entitled to assume that internal company rules are complied with, even if they are not. The
court ruled in favor of the appellant, the Royal British Bank, and determined that the bank had
the right to recover the loan from the company despite the irregularity in the board resolution.

OR
The Royal British Bank v. Turquand case, also known as the Turquand’s Case, is a
landmark company law case that established the indoor management rule or the Turquand
Rule. This rule protects the rights of bona fide third parties who enter into transactions with a
company. It allows them to assume that internal company rules are complied with, even if this
is not true.
Here are the key details of the case:

• Name of the Case: Royal British Bank v. Turquand

• Citation: 6 E&B 327, All ER 435
• Year of the Case: 1856
• Plaintiff: Royal British Bank
• Defendant: Turquand
• Background:
o The Memorandum of Association of the Company is lodged with the Registrar
of Companies and is available for public inspection.
o Outsiders dealing with the Company are free to inspect the document to check
for any limitations of powers or business restrictions.
o However, this posed a problem because it assumed that outsiders were aware of
any irregularities within the Company regarding decision-making.
• Facts:
o Turquand was appointed as the official manager to liquidate the insolvent
‘Cameron’s Coalbrook Steam, Coal, and Swansea and London Railway
Company’.
o The company had issued a bond of £2000 to the Royal British Bank, securing
the company’s drawings on its current account.
o The bond was under the seal of the company, signed by two directors and the
secretary.
o The Royal British Bank sued Turquand for non-payment of the bond.
o The company claimed that, under its registered deed of settlement (the articles
of association), the directors had limited power to borrow.
o The defendants argued that they had not adopted any resolution allowing the
making of the bond.
• Issues:
o Whether the company is liable for the loan?
• Judgment:
o Sir Jervis upheld the judgment of the Court of Queen’s Bench.
o He believed that the resolution set out in the replication satisfied the
requirements of the deed of settlement.
o The resolution authorized directors to borrow sums on bonds in accordance with
the act of settlement and the Act of Parliament.
o The resolution did not otherwise define the amount to be borrowed.

In summary, the Royal British Bank v. Turquand case established the principle that third
parties dealing with a company can rely on the external documents (Memorandum of
Association and Articles of Association) to determine the extent of the company’s authority,
without needing to inquire into the regularity of internal proceedings